News Analysis: Carnival Lowers the Boom, Tries to Equalize Pricing

As of July 2, 60,000 travel agents worldwide, most of those in North America, are being told in no uncertain terms by Carnival Cruise Lines: The line won't tolerate any rebating or price inconsistency in any communications— whether mass media or in personal discussions or -emails to guests, effective August 1.

In the strengthening of a policy made in 2005, Joni Rein, Carnival’s vice president of worldwide sales, is telling retailers that the line’s current Advertising PricingPolicy will soon be made much stricter. That current policy says only Carnival-approved rates may be advertised by mass media.

But with that policy, agents could still discount if they were involved in one-on-one communications with customers such as in a phone conversation or e-mail. But that will be gone, Rein says.

Starting in August, only Carnival ApprovedRates can be used for any form of communication with customers. “We had a tremendous amount of feedback from the distribution system [that the current policy] was unfair and not equitable. We’re sending a message about our brand,” Rein said, stressing that Carnival’s brand is the largest and most well-known cruise brand.

She says the value of a cruise speaks for itself, and most agents will be “relieved” that clients aren’t shopping from agency to agency. The goal, says Rein, is to “eliminate the unauthorized manipulation of its pricing at the agency level.”

Stabilizing Pricing

Rein said that despite Carnival’s best efforts over the past few years, price inconsistency still reigns within the cruise selling marketplace. Retailers now find themselves still competing in an environment where competitors still sell on price, rather than selling the value of the cruise experience.

In addition, Carnival is modifying its policy relative to value-added items being marketed in conjunction with a cruise. These include gifts, amenities or services included with the cruise purchase. Rein says the line continues to receive positive feedback from agents that the value add-ons, when used in conjunction with a specific sales and marketing plan, are a good tool.

Going forward, the new pricing policy will continue to permit value-adds, Rein says, as long as they are part of a formal sales and marketing plan to promote the Carnival product. Pre-approval of the plan is not required for non cash-equivalent value-adds where the actual or perceived value does not exceed 5 percent of the complete cruise fare or $25, whichever is greater.

Non-cash equivalents that exceed this amount and all cash-equivalent value-adds— such as an onboard credit or gift card— will require agents to submit a travel partner sales and marketing plan and receive pre-approval from Carnival. Plus, the value of the giveaway item must be less than 10 percent of the complete cruise fare.

Carnival is also beefing up enforcement. “We will have a dedicated team in sales administration that is primarily [dedicated to enforcement policy],” she stresses, noting that the line will monitor and track pricing through advertising channels and through the monitoring of payments applied to bookings. She also anticipates that the line will learn, as it does now, about some agencies who see violations by others and blow the whistle.

In a process somewhat similar to a corporate performance appraisal, when a non-performing employee is given a warning and advised of steps to improve performance, Carnival will call and notify agencies perceived to be in violation of the new policy. Carnival's communications will provide steps that need to be taken and a timeline for doing so.

Carnival believes most agencies will comply, and that further action likely won’t be needed in most cases. But if the agency continues to violate the policy, Carnival’s enforcement efforts definitely will have “teeth,” Rein says.

What happens if the agency is in real trouble over this new policy? Violation of the policy could result in a range of actions. Carnival cites elimination of co-op marketing support; reduction or elimination of base commission; and, in a worst case scenario, the agency being placed on a no-booking status

Do you have questions? Want to know the rules and nuances of the new policy? There simply wasn't enough space to explain it all here. Rein suggests agents visit www.bookccl.com for more details and a robust Q&A about the change. Carnival’s business development managers will also be available to assist agents in their territories in understanding the new policy.

Agency Reaction

Clearly, agencies that currently discount won’t be happy when the new policy takes effect in August. Others may question the line's motive, asking if it isn't just a ploy to book more direct business. But in fact, some of the policy changes being implemented by Carnival were recommended to the line by its Executive Forum, a group of trade partners.

“At this juncture, we’re extremely excited about the change,” Rein said. “We’re listening to what our travel partners need. And there is more to come.” Here is a bit of feedback Travel Agent secured from two agencies.

As president and COO, Vacations to Go, Emerson Hankamer applauds Carnival’s move as good for agents and the industry. “I am glad Carnival is standing up to agencies who feel compelled to undermine the profitability of the agency distribution system,” Hankamer says.

He understands that agencies that currently rebate will complain. But he also points out: “They need to be reminded that they are paid commission to market and sell the value of a cruise, not just undercut Carnival’s price. My guess is that this policy will ultimately make them more money.”

According to Hankamer, some years back the biggest rebater in the cruise industry— South Florida Cruises— rebated itself out of business. Travelers were stranded, the entire industry got a black eye and the cruise lines had a huge mess to handle. He also cited another sad situation – that of Cruise Value Center (CVC), noting that Cruise Week reported at the time that nearly $3 million in client final payments were never forwarded to the suppliers. Had CVC not rebated they would most likely be in business today, Hankamer believes.

“Instead of promoting the intrinsic value of a cruise, rebaters devalue the product by teaching customers to haggle for it,” he says, which leads to clients calling multiple agencies to see who will rebate most, wasting the agency’s time and tying up cruise line resources. “Rebating also weakens the distribution system,” he believes, pointing out that “because rebaters survive on a sliver of the normal compensation, they cannot afford to hire top sales people, offer extensive training and excellent customer service, or guarantee financial stability--the traits that any company selling cruises should have.”

He addressed the view of some that Carnival is simply strengthening its ability to sell directly to the consumer. “If an agency on sells on price, this change may affect them, but their real issue is not this policy but the fact that they do not— or cannot— sell the value of a cruise,” he notes. “I predict that agencies that currently focus on marketing and selling the value of a cruise will support this change.”

As owner of Destinations Café, a small cruise-only agency in Orlando, Lynn Edwards welcomes the policy change, but the change in policy wasn’t a shock to her. In fact, she expected it several years ago. “Royal Caribbean Cruise Lines as well as Celebrity Cruise Lines have both been supporting this policy for several years now,” said Edwards.

She said that on the surface it does seem to put more money back in the travel agency’s pocket, but she also recognizes that savvy agency owners have maneuvered around it with the various shipboard credits, wine and other gift incentives for booking. “With the slue of competitive websites out there, it is my opinion that agency owners and managers will be forced to do the same with the Carnival product,” says Edwards.

“It is unfortunate that we have to do this as the traveling public seems to have zero loyalty to an agency and will book elsewhere for a bottle of wine or an extra coupon booklet," she notes. That said, she will instruct her agents to represent the product for what it is and sell it based on the value of a cruise in general and Carnival as a reputable company.

“I am hoping other agencies will respect this also,” Edwards stresses. “Our business relies on all agencies following the policy and Carnival not allowing any agency slip through their fingers and allow the discounting to continue.”

She also said two things will happen. First, customer service [at an agency] will have to step up to the plate, and agents will need to rely on sales techniques rather than price to secure the booking. “The will now have to work every harder for it,” she says.

She also says her agency also will have to struggle with the public’s initial shock, and agents will have to overcome objections. “Our production numbers will fall, and I am prepared for that,” Edwards stresses, noting that in the long run the agency will pull through and gain the trust of the loyal customers it now has.

She also says she doesn’t think other cruise lines will follow through, “as there is really no reason for them to do so. They get the same net price per person whether agencies discount or rebate.” She says Carnival’s revised program will determine its success via its enforcement actions. “The discounting, rebating and other such gifts will continue until they do [get tough with violators],” Edwards says.